SUMMARY OF BOARD DECISIONS

Summary of Board decisions are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions are included in an Exposure Draft for formal comment only after a formal written ballot. Decisions in an Exposure Draft may be (and often are) changed in redeliberations based on information provided to the Board in comment letters, at public roundtable discussions, and through other communication channels. Decisions become final only after a formal written ballot to issue an Accounting Standards Update.

December 16, 2009 FASB/IASB Joint Board Meeting

1. Warranties and product liability
2. Rights of return
3. Estimates of uncertain consideration.

1. Reconsidered whether all product warranties give rise to separate performance obligations, as proposed in the Discussion Paper, Preliminary Views on Revenue Recognition in Contracts with Customers
2. Considered whether product liability laws give rise to performance obligations.

1. If the objective of a warranty is to provide a customer with cover for latent defects (that is, those that exist when the asset is transferred to the customer but which are not yet apparent), that warranty does not give rise to a separate performance obligation. Instead it acknowledges the possibility that the entity has not satisfied its performance obligation to transfer the asset specified in the contract. Therefore, on the basis of all the available evidence, the entity would determine at the end of the reporting period the likelihood and extent of defects in the assets it has sold to customers and, hence, the amount of unsatisfied performance obligations with respect to those assets. Consequently:
   1. If the entity will be required to replace defective assets, it does not recognize revenue for those assets;
   2. If the entity will be required to repair defective assets, it does not recognize the portion of revenue that can be attributed to components that need to be replaced in the repair process.
2. If the objective of a warranty is to provide a customer with cover for faults that arise after the product is transferred to the customer, that warranty gives rise to a separate performance obligation. Therefore, the entity allocates part of the transaction price to that warranty performance obligation.
3. If the law requires an entity to pay compensation if its products cause harm or damage, that requirement does not give rise to a performance obligation. The entity accounts for such obligations in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, or FASB Accounting Standards Codification^TM Subtopic 450-20, Loss Contingencies.

1. An entity should not recognize revenue for the goods that are expected to be returned, but instead should recognize a refund liability for the expected (probability-weighted) amount of refunds to customers.
2. Subsequently, an entity should update the refund liability for changes in expectations about the amount of refunds and make a corresponding adjustment to the amount allocated to the performance obligations.
3. An entity should recognize an asset (and corresponding adjustment to cost of sales) for its right to recover goods from customers on settling the refund liability, initially measured at the original cost of the goods (that is, the former carrying amount in inventory).
4. The promised return service should not be accounted for as a separate performance obligation in addition to the refund obligation.

1. An entity should include an estimated amount of uncertain consideration in the transaction price only if it can identify the possible outcomes of a contract (that is, consideration amounts) and reasonably estimate the probabilities of those outcomes.
2. In the context of revenue recognition, an entity can identify the possible outcomes of a contract and reasonably estimate the related probabilities only if it:
   1. Has experience with identical or similar types of contracts
   2. Does not expect circumstances surrounding those types of contracts to change significantly.
3. The Exposure Draft should provide some factors for an entity to consider when assessing whether to include estimated consideration amounts in the transaction price.

1. How to account for leases that include contingent rental arrangements and residual value guarantees
2. The scope of the proposed new requirements for leases.

1. The obligation to pay rentals recognized by the lessee, and the receivable recognized by the lessor, would include amounts payable under contingent rental arrangements.
2. A lessor would only recognize a receivable for amounts due under contingent rental arrangements if the receivable could be measured reliably, which is consistent with the Boards' tentative decisions on revenue recognition.
3. The obligation/receivable would be measured using an expected outcome technique. The final requirements would clarify that not every possible scenario would need to be taken into account when measuring the obligation/receivable.
4. Contingent rentals based on an index or rate would be measured using readily available forward rates. If forward rates are not available, the rates at the inception of the lease would be used.
5. The carrying amount of the obligation/receivable would be reassessed at each reporting date if any new facts or circumstances indicate that there is a material change in the obligation.

1. Leases of intangible assets
2. Leases to explore for or use natural resources, such as minerals, oil, and natural gas
3. Leases of biological assets.

1. Not to change the current reporting requirements for instruments currently accounted for in accordance with FASB Accounting Standards Codification™ Topic 718, Stock Compensation, and IFRS 2, Share-based Payment, regardless of any other decisions in this project.
2. To report on the statement of financial position physically settled forward purchase contracts as offsetting debit and credit instruments. The credit instrument would be a liability for the total future payment discounted to its present value using a market interest rate that the issuer would have had to pay if it had issued a cash-settled debt instrument with similar term to maturity. That liability would be reported at accreted cost. The debit would be reported as an offset to equity, but the Boards did not decide whether the offset would be considered a reduction in the number outstanding shares.
3. To continue to consider principles or exceptions for determining which types of share-settled instruments would be classified as equity.